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Incumbency and Entry in Licence Auctions: The Anglo-Dutch Auctions Meets other Simple Alternatives

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  • Helmuts Azacis
  • Roberto Burguet

Abstract

The existence of ex-ante strong incumbents is a barrier to entry in auctions for goods such as licenses. Introducing inefficiencies that favor entrants is a way to induce entry and thus create competition. Designs such as the Anglo-Dutch auction have been proposed with this goal in mind. We first show that indeed the Anglo-Dutch auction fosters entry and increases the revenues of the seller. However, we argue that a more effective way could be to stage the allocation of the good so that each stage reveals information about the participants. We show that a sequence of English auctions, with high reserve prices in early rounds, is a procedure with this property that is more efficient than any one-stage entry auction. Moreover, it also dominates the Anglo-Dutch auction in terms of seller's revenues.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 223.

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Date of creation: Jul 2005
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Handle: RePEc:bge:wpaper:223

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References

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  1. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  2. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA.
  3. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847, April.
  4. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers.
  5. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms -super-1," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1085-1111.
  6. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
  7. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  8. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  9. repec:wop:humbsf:2000-72 is not listed on IDEAS
  10. Burguet, Roberto & Sakovics, Jozsef, 1996. "Reserve Prices without Commitment," Games and Economic Behavior, Elsevier, vol. 15(2), pages 149-164, August.
  11. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  12. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
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Cited by:
  1. Gary Madden & Erik Bohlin & Thien Tran & Aaron Morey, 2014. "Spectrum Licensing, Policy Instruments and Market Entry," Review of Industrial Organization, Springer, vol. 44(3), pages 277-298, May.
  2. van Bochove, Christiaan & Boerner, Lars & Quint, Daniel, 2012. "Anglo-Dutch premium auctions in eighteenth-century Amsterdam," Discussion Papers 2012/3, Free University Berlin, School of Business & Economics.

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